Tiny Cyprus tells neoliberal Europe to get lost

We almost stopped believing it was possible, but apparently some lawmakers in European debtor states still have the guts and ability to stand up to their cocky, greedy and reckless foreign creditors. On Tuesday, an overwhelming majority of Cypriot MPs spectacularly voted against a bank deposit tax imposed by the Troika of lenders — with not a single MP voting in favor, despite the President’s warning that a no-vote would lead to financial armageddon. The tax was a prerequisite for Cyprus to receive its 10 billion euro EU-IMF bailout; the country’s dramatic act of defiance now leaves the eurozone reeling in great uncertainty as to the repercussions for the single currency.

Of course, the neoliberal European Goliath has itself to blame for the rebellious behavior of tiny Cyprus, whose 17 billion euro economy constitutes only half a percent of total eurozone GDP. After all, it was they who on Saturday blackmailed the Cypriot government into imposing a bank deposit tax of 9.9% on rich depositors — mostly Russian oligarchs — and 6.75% on ordinary Cypriot savers with less than 100.000 euros in the bank. The bank deposit tax was needed, according to EU and IMF officials, in order for Cyprus to contribute 7 billion towards the 10 billion euro EU-IMF bailout. If creditors were to take the burden of covering the entire 17 billion euro shortfall, so their reasoning went, it would both outrage German voters and take Cypriot debt levels to unsustainable levels.

But as soon as the “agreement” was announced, it immediately became obvious that the bailout was botched. The 10 billion euro emergency loan alone will already push Cyprus’ debt-to-GDP ratio to an unsustainable 130%, forcing an unprecedented degree of austerity onto the country — the likes of which would make even the Greek plight look like a walk in the park. But more importantly, perhaps, Cypriot depositors were rightly outraged by what effectively amounted to a government raid (spurned on by foreign creditors) on their hard-earned savings. While wealthy bondholders were once again let off the hook, ordinary Cypriots were forced to pay for the reckless behavior of their shady offshore banking sector and the irresponsible crisis management policies pursued by the European Union and IMF.

Taking to the streets in the thousands in an attempt to convince the government to backtrack on its commitment to foreign creditors — and simultaneously taking to the banks in the hundreds of thousands in an attempt to retrieve their savings — the panicked reaction of the Cypriot people threatened not only to spill over into a wholesale loss of confidence in the political system, but also to unleash nothing short of a potentially self-destructive and internationally contagious bank run, which could have had dramatic reverberations across the eurozone as depositors elsewhere might conclude that their savings are no longer safe either. Protesters in Nicosia were therefore right to carry placards into the streets in Spanish and Italian: it may be us today, but there is no doubt that you will be next.

Under this immense popular pressure, and under the general threat of a crippling bank run and mass capital flight that could force the Cypriot government to pump even more liquidity into its banks — which would in turn require it to print money, implying a forced exit from the eurozone and a return to the Cypriot pound — a total of 36 out of 56 MPs voted against the deposit tax, with 19 prominent government MPs abstaining and one absent. Not a single MP voted against. How come? Why did Cypriot lawmakers suddenly decide to listen to their own people, where Greek, Spanish, Irish and Portuguese MPs have made a profession out of backstabbing their voters?

Perhaps, and this may be naive, it is due to some genuine sense of demophobia — fear of the people? Even conservative market analysts have noted that the Cypriot bailout “highlights how post 2007 efforts to resuscitate and rescue western economies have continued to favor the vested interests of the financial sector, while treating the “population at large” with disdain and contempt – this sort of attitude is still a seedbed for social revolution, as has been witnessed above all in the Arab Spring.” Wolfgang Münchau of the Financial Times similarly observed that, “If one wanted to feed the political mood of insurrection in southern Europe, this was the way to do it.”

Luckily, there are other ways. With the total value of the Cypriot banking sector adding up to roughly eight times the tiny country’s GDP, Cypriot lawmakers might take a cue from Iceland, which just allowed its banks to go bust — and then went after the corrupt bankers who rigged the game to begin with. At the moment, the Cypriot economy is little more than a financial washing machine for dubious Russian oligarchs and disgustingly wealthy Greeks. This bizarre state of affairs has to end. If Cypriot politicians are to take the needs of their own people seriously, they should crack down on the island’s financial sector like they would crack down on any other mafia enterprise.

In this respect, the spectacular decision by Cypriot MPs to reject the creditor imposition of a deposit tax on ordinary citizens must not just be the start of some halfhearted attempt to extract better terms from the EU and IMF in return for continued bailouts, nor an attempt to safeguard the special interests of Russian oligarchs and foreign businesses using the Cypriot banking system as an offshore tax haven. Rather, it should be the start of something much more radical: a pan-Mediterranean campaign to reject the imposition of banker control and foreign creditor demands altogether. After all, only if sovereign states are shown to be capable of setting their own social and economic agenda can European leaders begin to rekindle at least the illusion of presiding over a democratically accountable society.

Whether such reformist crumbs will prove to be enough for an increasingly restive European population — which is now starting to demand the whole bloody bakery in revenge for the neoliberal raid on their daily bread — remains a different question altogether…

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Jerome Roos

Jerome Roos is an LSE Fellow in International Political Economy at the London School of Economics, and the founding editor of ROAR Magazine. His first book, Why Not Default? The Political Economy of Sovereign Debt, is forthcoming from Princeton University Press.

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